Microsoft + Skype: What it means for Grandma

Microsoft’s $8.5 billion acquisition of Skype is the biggest ever in the Redmond company’s 36-year history. With Skype in its arsenal, Microsoft has armed itself for both offense and defense – offense in that Microsoft will (pending regulatory approval) have control of one of the hottest and fastest growing technology segments, and defense in that Microsoft is keeping Skype out of the hands of a competitor such as Google.

But what does it mean to you? What does it mean to the everyday consumer who just wants to video-chat with relatives? Really, what does it mean for Grandma?

Grandma doesn’t care that Microsoft will weave Skype into its business communications platform, Lync. Grandma doesn’t care that Skype is profitable and brought in $860 million of revenue in 2010 (up 20 percent from the year before). Grandma doesn’t care that Microsoft’s acquisition offer was unsolicited, that a price was set April 18 and that the transaction, finalized Monday night, is all in overseas cash.

Grandma wants to know whether Microsoft will move the buttons around on the Skype software. Grandma wants to know whether she’ll still be able to chat as easily with her grandkids. Grandma wants to know how the acquisition will affect her.

By and large, it comes down to one word: advertising.

Before Microsoft even approached Skype, a broader strategy was in the works to better monetize what is the most popular communication Web service, said Skype CEO Tony Bates (soon to be president of the Microsoft Skype Division). Skype has begun rolling out video advertisements to about 5 percent of the U.S. market, he said, but could use the selling power of Microsoft’s online advertising business. The Luxembourg-based company also is working on interactive ads that pop up and take over the user’s entire computer screen.

“We think advertising is a very powerful monetization stream for us,” Bates said this morning at a news conference in San Francisco, sitting beside an excited Microsoft CEO Steve Ballmer.

Microsoft also plans to integrate Skype into consumer products such as Windows, Windows Phone and Xbox. This is where the acquisition will affect perhaps not Grandma, but Mom and Dad and Son and Daughter.

Specific products and timing won’t be announced until later this year, after the deal goes through some federal regulatory scrutiny, Microsoft CFO Peter Klein said. But Skype will soon be prominent in Windows, an integral part of the Windows Phone smart-phone platform, in the living room through Xbox and Kinect, and on the Web as a piece of Hotmail.

Because most people who’ve used Skype have likely used it on a PC, let’s move past Windows. Without a doubt, a Skype app is on its way to Windows Phone; there already are Skype apps for Apple’s iPhone and Google Android devices that let users voice- and video-chat with their phones. With control of Skype, Microsoft will have a stronghold on Web-based communication in the mobile world – but both companies insist Skype’s cross-platform presence won’t fade away.

“I said it, I mean it: We will continue to support other platforms,” Ballmer said. “Fundamental to the value proposition of communications is to reach people whether they’re on your device or not.”

Bates, speaking about the Skype side of the past month’s acquisition talks, said the continuation of cross-platform support was “fundamental to the deal.”

So breathe easy: Your Skype iPhone app won’t suddenly disappear, nor will your Skype Mac software cease to work. However, Ballmer said Microsoft will work to “optimize” Skype for its own products.

Kids and young adults – and, increasingly, not-so-young adults – will eventually be able to video-chat via Skype on their televisions through Xbox 360, Microsoft’s video-game console. And Kinect, the popular $150 motion-sensor add-on released in November, can also function as a webcam. Microsoft already provides a video-chatting service through Xbox Live, but there’s no doubt it would have more value – and would be more useful – connected to Skype’s network, not just to other Xbox gamers and Windows 7 machines.

Then there’s integration into a more traditional form of communication: email. Ballmer said it will align Skype and Lync, Microsoft’s newly rebranded (it previously was Office Communicator) voice- and video-chatting product for businesses, competing with popular systems from firms such as Cisco. Moms and dads may already have experience with Lync in their offices, through Outlook or Lync software.

And Hotmail. Ballmer mentioned the online email service in passing, but it’s certain Microsoft would want Skype there. Video-chatting is already available through Windows Live Messenger – but hey, it’s not Skype, and it’s not in Hotmail proper. Google, for one, already has video-chat in its popular Gmail service, and announced last month it would bake the functionality into the next version of Android for mobile phones.

Finally, there is the less-tangible change of putting Microsoft’s mega-muscles behind relatively small Skype. Microsoft plans to continue building Skype’s user base – the service has about 170 million connected users, up 40 percent from a year ago, and registers about 600,000 new users per day, Ballmer said.

“We believe this is a set of services and a platform that can reach everybody on the planet,” Bates said.

So, grandmas and grandpas, moms and dads, college students and teens … meet Microsoft Skype.

“We are a very ambitious company. We are irrepressible in moving forward and trying new things,” Ballmer said. “This Skype acquisition is entirely consistent with our ambitious, forward-looking, irrepressible nature.”